Many of the hottest global real estate markets didn’t get that way due to local requirements. They’re hot because of investors looking to either park money or seek a better return on investment than can be found in traditional banking.
I had thought about writing about second home opportunities in Hong Kong for daltxrealestate.com’s sister blog SecondShelters.com, but I think there’s more value for Dallasites to learn. I won’t say, “there but for the grace of god …” but in smaller ways Dallas should learn lessons from cities that already have high-growth.
Many readers are old enough to remember when money market accounts, bonds, CDs and even savings accounts could be combined for a decent, low-risk annual gain. Today we know all too well those instruments offer rates equivalent to mattress stuffing. After all, the same low interest rates found on residential mortgages and business borrowing are killing returns on those low-risk investments (interest paid to savers is tied to interest generated by loans).
This need for investment gains has sent formerly low-risk investors to stock markets. And global exchanges are awash in cash and flying incredibly high. Even mild research uncovers the fear that raising interest rates would send global stock markets reeling as low-risk investors abandoned stocks for more secure investments.
Couple that with rising mortgage rates and we could very easily see house prices cool and even retract as buyers’ budgets absorb higher monthly payments. (Most people have a fixed pot of money for housing. If interest rates go up, what they can afford goes down.)
For small investors and the retirement-adjacent, low-risk diminishes the likelihood of financial dependence while providing stable income supplementation.
Regardless of the global recession, we still largely believe real estate is a low-risk investment. For the small investor, homes and condos are purchased and either leased or flipped. Would-be CD holders are now landlords spurred on by HGTV’s get-rich-quick programming. There has always been this element in the market, and I suspect it’s a good thing. Landlords address an increasing rental market that doesn’t want to live in an apartment complex. Flippers bring new product to market for buyers who don’t want sweaty equity.
As with all things, a gluttonous few tip the balance. Couple that with a herd mentality and it’s easy to see specific real estate markets boom well beyond their local needs. The reasons why investors settle in the same places could be either calculation or coincidence. In the 1990s, Japanese investors flocked to Banff and Calgary, largely due to the popularity of a Japanese TV show set there. Many western Canadian cities saw a boom from Hongkongers seeking a hedge against the 1997 turnover to mainland China (Hong Kong and Canada were British Commonwealth members, an easy escape for dual-passport holders).
Over time, the “pioneers” built a cultural infrastructure that brought similar buyers. Prior to the investor boom, these Canadian cities had typical real estate markets. Today, a reasonable teacher’s home purchased 20 years ago could command CN$2 million. I know because a teacher friend did just that as she sailed into retirement.
As currency restrictions in China increase, more reasonably-priced US real estate is seeing more action. While overall 2016 has seen a decrease in Chinese residential investment, outside expensive California, Canada and Seattle, other locations are still seeing action. On the commercial front, Chinese insurance firms are keeping the market hopping because of laws allowing them to invest up to 15 percent of income outside China. This includes Texas.
In Part Two learn the downstream results from the artificially inflated pricing driven by investors and the tactics they employ to continue the hunger for redevelopment and housing.
Remember: High-rises, HOAs and renovation are my beat. But I also appreciate modern and historical architecture balanced against the YIMBY movement. If you’re interested in hosting a Candysdirt.com Staff Meeting event, I’m your guy. In 2016, my writing was recognized with Bronze and Silver awards from the National Association of Real Estate Editors. Have a story to tell or a marriage proposal to make? Shoot me an email [email protected].
